3. Why do People Pay Income Tax? Federal and provincial governments require ALL residents to pay a % of their income in tax (with the exemption of people with income less than $7,756 annually) These taxes are what pays for public services such as the legal system (including policing), roads, childcare subsidies, and more Canada has a progressive tax system, meaning people with higher incomes pay higher taxes In 2016: Federal tax ranges from 15% - 33% Provincial Tax ranged from 4% (ON) - 25.75% (NB) Example: $50,000 income – 30% in taxes = $35,000

5. Paycheque Deductions Employers must withhold a portion of each employee’s pay (this is the paycheque deduction) AND send it to the government so that the government will have money to operate throughout the year. Once a year, when completing their income tax return, tax payers can review their total paycheque deductions and claim back any excess that was collected (or pay any unpaid taxes). Must be filed by April 30 th

6. What Happens When People Receive Income without Paycheque Deductions? All Canadian RESIDENTS are required to pay tax on all income. However, paycheque deductions don’t apply to some sources of income including investment income, self- employment and contract work. In those cases, residents are required to report their own income, and may be required to submit tax instalments monthly or quarterly.

7. What is a Tax Return? Once a year, tax payers must file a report (a “return”) that shows all their income and how much taxes they have paid through paycheque deductions. This is due April 30 th. If they have overpaid taxes, they will get some money back – that’s why we call it a “return”! If they have underpaid taxes, they will be required to pay the difference. The government will then check over all the returns and may require you to submit evidence of your finances for the past year (or even previous years!)

8. How Is a Tax Return Filled Out? On paper or electronically By yourself, an accountant or advisor, or possibly your parents

9. What Happens When People Don’t Report Income OR file a false tax return? Tax inspectors have the right to inspect tax, income & other financial records to ensure the tax return is complete & accurate. If it’s not, the tax payer can be assessed for any missing taxes, plus interest & penalties. (They can go back YEARS … not just the current year). In serious cases, the taxpayer can be charged with tax evasion and, if found guilty, sent to jail and/or fined.

10. Tax Credits & Deductions Available to Students Students can claim a tax credit for the amount of their tuition. Full-time students can also claim an education amount of $400 for EACH month they were registered in FULL time in an approved institution. The education amount is $120 for each month for part-time students. Students may also be eligible for tax deductions like the cost of moving to another location to go to school (or even get a job). Low-income Canadians (including students) can claim a credit to offset a portion of the Goods and Services tax (GST) they’ve paid. Students over the age of 19 may be eligible for a credit on their own income. You must KEEP RECEIPTS to claim this.

11. What is an RESP? Registered Education Savings Plan One way to save for your education AND get a tax break at the same time. If the income earned in RESP is withdrawn (for education) it’s taxed as YOUR income (the student), no matter who deposited the money (such as your parents). It’s likely to be tax-free because your income is low while taking your classes. If the income is withdrawn for any other reason, your contributor (such as your parents) would generally have to pay income tax with penalties on it.

12. What is an RRSP? Registered Retirement Savings Plan Gov. of Canada encourages Canadians to save for retirement by allowing them to DEDUCT from their income the money contribute to an RRSP. For example, if you had $60,000 in taxable income one year but contributed $5,000 to an RRSP, you only have to pay taxes on $55,000. The money contributed to your RRSP can grow, tax-free, until you withdraw some of it. When you withdraw it, the money is taxed as income… but if you are retired at that time you’ll probably pay less tax because your income and taxation rate are likely to be lower.

13. What is a tax-free account? GIC RRSP (and tax break) Term Shares Mutual funds -The interest earned from the investments is tax free! -You can contribute (add to your investments) up to $5,000 per year.

14. Quiz – Check your understanding 1) Why do people pay an Income Tax? a) To cover public service costs b) To donate to charity c) It covers a part of a person’s mortgage 2) What does an RESP stand for? a) Registered Education Savings Plan b) Regional Education Savings Plan c) Registered Everyday Savings Pension

15. Quiz – Check your understanding 3) What does RRSP stand for? a) Registered Retirement Savings Plan b) Right Retirement Savings Plan c) Registered Retirement Savings Pension 4) What is the purpose of an RRSP? a) Encourage Canadians to Invest with the Gov’t b) Encourage Canadians to save for their retirement c) Encourage Canadians to contribute to their pension

16. Quiz – Check for understanding 5) Income Tax Return must be completed by: a) August 31 b) May 30 c) April 30 ANSWERS: 1 a 2 a 3 a 4 b 5 c